Business expert: Delivering profitable growth
3rd December 2018
I often get asked how do I grow my business and how can I find the time to make change.
My colleague Ollie Newbold wrote recently about the importance of profitable growth to increase business value, read that article here , and my last article looked at some ways to improve productivity and reduce the need for more staff resource which can have a positive impact on profitability but how do you get profitable growth?
Did you know you can see the impact from change in as little as 90 days by pausing the day to day, thinking differently about your business and customers, and focusing on a few key elements that need to be improved?
You need to explore the four ways to grow to see which is appropriate for the business:
1 - Market penetration. This comes down to selling more of your existing products to your existing market. It is the lowest risk approach as you are dealing with products and markets that you are familiar with;
2 - Product Expansion. This involves selling a new product into your existing market; or
3 - Market Expansion selling your existing product into a new market.
Coincidentally, businesses pursuing expansion strategies will often look at acquisition to give them access to the new product or market. It carries higher risk as either the market or product will be new to you but can offer good opportunities for rapid growth;
4 - Diversification. This is a high risk strategy as you will be dealing with both a new product and a new market. I have seen it described as diworsification for that reason - things can go wrong.
Taking the time to consider small tactical steps to increase sales can help you make the changes quickly and start realising the benefits earlier. Successful ways to do so include:
• An accountant will always tell you to put your prices up. The key to success here is differentiation. If the only thing the customer perceives is different about your product is price, then that will be what they use to make a buying decision.
• When looking at sales we encourage people to look at the process and see where the weaknesses are. The number of customers you have is the result of the number of leads you generate multiplied by your conversion rate. If marketing is strong and generates good leads which failed to convert, maybe your sales process needs a review. Conversely, if conversion rates are high but leads are low, we need to look at marketing.
• Turnover is impacted by the number of transactions per customer and the average spend per transaction. We are looking for the customer to buy more often or buy more when they do, or both. Often customers will be using more than one supplier for your product so the opportunity is there to increase your share of that spend.
• When looking at sales, understand where the customer perceives the value to be in your product. Often the part of the product that costs the most delivers less value to the customer, with the value being in the part that costs less. A good example of this is in online retailing, where the returns policy is key. Quick, easy and inexpensive returns are essential to the customer and cost much less than the product itself. Recognising that and doing returns well drives sales.
Delivering profitable growth may not be as problematic as you think. Once we have driven efficiency into the business it is time to focus on growth at both a strategic and tactical level.
If you would like more information on how to deliver profitable growth or challenge Will to make a positive impact on your business in 90 days, please contact us, on 01242 776000 or email email@example.com. www.randall-payne.co.uk
Business Expert: Are you ready for Exit?
26th November 2018
We typically see the exit from a business falling into the following process:
1. Understand the value of the business - business valuation was recently addressed in a previous Business Expert feature;
2. Maximise value;
3. Detailed preparations for sale;
4. Marketing the business;
5. Completion of a sale.
How can you maximise value?
The following value drivers should be frequently considered, however, if you are planning on selling your business within the next five years, these need to be addressed to ensure that your business can achieve its full market value potential.
• Profitability - To be in the best position for sale, your business needs to demonstrate underlying profitability and growth potential. The best scenario for a seller is to demonstrate a pattern of consistent growth.
• Strong Management Team - Does your business pass 'the bus test'? If you were hit by a bus tomorrow, would your business continue to run effectively? If your business can't run itself without you, then this is something you need to address.
• Healthy Cash Flow - With poor cash flow often being the cause of business failure having a healthy cash and working capital position demonstrates that your business has been run efficiently and effectively.
• Barriers to Entry - Barriers to entry will increase the value of your company. Intellectual property, high capital investment and advanced technology are all factors that create barriers to entry which can maximise the value of the business.
• Clear Strategy - A buyer will often want to see that a business has been run with clear strategic objectives in place that management have bought into.
• High Customer Concentration - Business value can be significantly eroded where one customer accounts for a significant portion of your turnover. The ideal remedy for this is to dilute this proportion by winning more customers, however, some businesses may find themselves in a position where they cannot avoid high levels of customer concentration - in this scenario it is best to try and put robust contracts in place, thus providing some visibility of future income.
• Capital Expenditure - Are the assets that are required in the day-to-day running of your business in good shape? Assets should be up-to-date and well maintained to ensure that productivity levels are high and the benefits of this subsequently filter through to improve financial performance.
• Customer Satisfaction Rates - In a world heavily focused on social media, customer satisfaction must be at the forefront of every business owner's mind. Negative customer feedback, particularly on a regular basis, highlights poor customer service which has a detrimental impact on value.
If you plan to exit your business in the next five years or so, and are concerned that one or more of the value drivers outlined in this article may have a negative impact on its sale value, we can help you to get your business in the best shape for sale - and then help you to sell it.
Business Expert: Family and owner-managed companies under threat from Budget rule change
19th November 2018
The surprisingly eventful Budget on October 29 all sounded very positive as it was presented, but picking through the finer detail has revealed a potentially unwelcome trap which could catch out a very large number of family and owner-managed companies.
For some years now it has become normal practice for companies to have a different class of share (commonly known as "alphabet" shares) for each shareholder, as this gives them the flexibility to pay dividends out of profits which do not have to be in proportion to the shareholdings.
This is useful, for example, where it is desirable to pay dividends to certain shareholders in lieu of some salary, or based on other criteria such as new business won by an individual or annual performance related dividends.
Entrepreneurs' Relief has been around for 10 years now, and is designed to tax entrepreneurs at a beneficial 10 per cent rate of Capital Gains Tax when they dispose of shares in a trading company (the intention being to encourage enterprise in the UK economy). One of the key requirements for the relief is that the entrepreneur owns at least five per cent of the business.
The Budget contains a provision designed to stop this relief on far more contrived tax avoidance arrangements than this, but these everyday alphabet share structures could end up, apparently unintentionally, being caught in the cross fire.
The rule change requires that the shareholder must not only own at least five per cent of the shares, but must also be beneficially entitled to receive at least five per cent of the distributed profits.
The trouble is that in the vast majority of alphabet share structures, the flexibility permitted by these share classes means that there is no absolute entitlement to at least five per cent of the profits (even though in practice these shareholders probably do receive at least this proportion).
We are in the process of trying, in conjunction with the professional accounting and tax bodies, to clarify the impact of this change with HMRC. In the meantime it is to be recommended that businesses discuss their ownership arrangements with their accountant to see if they might be affected by this change, and what they may be able to do about it.
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